Foreign Investors Council in Latvia (FICIL) shares view

Our Christmas Issue of Latvia Invest provides you with an opportunity to see how the current situation in Latvia is seen by the Foreign Investors Council in Latvia (www.ficil.lv). Here is a transcript of the Latvia Invest interview with Mr Andris Laucins, the Chairman of the Board of FICIL and a Board Member of Ernst&Young Baltic.

Andris Laucins
Board Member
Ernst&Young Baltic

Q: Please tell us briefly about the Foreign Investors Council in Latvia (FICIL)? It was established almost 10 years ago, so what is FICIL’s role within the Latvian economy today if compared to those early days?

Andris Laucins: The role of FICIL in Latvia has changed as the country has progressed. At the very beginning we mostly dealt with the development and implementation of specific action plans which could facilitate business and improve the foreign investment environment. The accession to the EU and NATO slightly changed our focus, as it was a clear sign that the overall situation had improved significantly and we could move on.

Therefore, for the last couple of years, we found ourselves working increasingly as consultants on the long-term strategy and vision of Latvia. Our role means we work hand in hand with the Cabinet of Ministers and other governmental institutions. FICIL has now turned into an instrument for our members to communicate their corporate social responsibility and consequently have an impact on the current situation in Latvia.

Q: How can an investor benefit from FICIL today?

Andris Laucins: In order to benefit or collaborate with FICIL, one does not necessarily have to be a member. For smaller investors or those just planning to establish themselves in Latvia, the most efficient mechanism would be to approach the respective trade council. As I stated earlier, we maintain an open dialogue with a number of institutions and if a company or an individual is willing to make an impact, it will be heard.

Q: If we look at the latest FDI statistics for Latvia, the numbers are very good, especially for 2006 and for what we have seen of 2007. What are your thoughts on that?

Andris Laucins: We should not overvalue the figures, though the statistics clearly show that the level of service many investors have found in Latvia is rather high. It is no longer cheap labour or an abundance of natural resources that attracts foreign investment. Now I would say it is our state administration system that, along with other factors, plays a substantial role in forming investment decisions.

Q: If we look at cumulative FDI figures, Estonia, Sweden, Germany and Denmark are leading the way. Do you expect any significant changes in the coming years, for instance, increasing activity from the East?

Andris Laucins: We will most likely be affected by the same trends in capital flows that are taking place in the global arena. Previously capital usually moved in a West to East direction along with decreasing costs. Now we experience a reverse process created as the East has matured economically and countries such as Russia, China, India and others are having a larger impact on other countries’ FDI figures. I expect rather soon we will see a similar trend in Latvia as well.

Q: Have you as FICIL experienced any significant mood changes from the foreign investors as a result of the current economic situation (for example, the inflation issue)?

Andris Laucins: We as FICIL mostly work with long-term strategic investors. Therefore developments such as annual wage increases or similar changes certainly do have an impact on their overall performance; however there has not been a single case where a company we work with on a regular basis would have considered a possibility of relocating to another country or anything like that.

As our clients have become an integral part of Latvia’s economy they act accordingly and try to improve the situation here. This is exactly where FICIL steps in by creating reasonable economic solutions in close cooperation with the clients and presenting them to the regulatory bodies. Lately, for instance, we have been very much focused on inflation battling mechanisms and the potential tax reform.

Q: It has been several months since the Latvian Government introduced the anti-inflation measures. How do you value this period? What are the positive changes the plan has brought? What are the areas that need additional attention?

Andris Laucins: FICIL supported the creation of a plan like this from the very beginning. Despite the delayed implementation and the disturbing inflation figures which remain high, the results have brought several positive changes. What we see as the most positive effect is that the Government has finally acted on the issue. FICIL was more worried a year and a half ago when the problem was rapidly approaching, but nobody seemed to care. The situation in this area has improved substantially and as a result we are now working along with the Ministry of Finance to create plan for the economic stabilization.

Q: What do you see as Latvia’s long-term priorities? What are the types of investments (industries or sectors) Latvia should focus on?

Andris Laucins: I personally feel that the largest obstacle to the successful development of Latvia is that the key priorities have not been declared clearly enough. Even though we might fail to prioritise the right sectors, not prioritising could cause much greater damage. Given the small size of our economy and our limited resources, we must focus all our efforts on the few sectors or clusters that could increase our overall performance.

Meanwhile, we must clearly understand our competitive advantages taking into account that Latvia is not abundant with natural resources or labour. It should not necessarily be the Government that makes the move; it could also be some other stakeholders, the Bank of Latvia for instance, which has very good macroeconomic specialists.

Q: Could you please name, let’s say, the top three priorities for Latvia at the given moment in order for it to become more competitive in the global arena?

Andris Laucins: In terms of priorities, we should first rectify the fragmentation of the Latvian economy, which is currently spread over too many areas. In order to prosper, we must have a clear leader or leaders in each sector or cluster, which could take the lead by investing in R&D activities.

Secondly, we must create a business environment that could encourage these leaders to collaborate with one another and create synergy effects. We could have a look at Latvia’s three largest ports (Riga, Ventspils, Liepaja) as an example that currently battle for the same transit flows. In our view the overall economic situation would benefit more, if the ports joined their forces.

Thirdly I would say we should also take advantage of the fact that Latvia historically has had the lowest energy prices in the EU. Even though the prices are going to increase, we will still remain very competitive in this area. Therefore, companies for which energy plays a crucial role in forming the end product could see Latvia as an attractive location.

Q: Given that this is our Christmas issue and the New Year is just around the corner, what would be your / FICIL wish for the established and future investors in Latvia?

Andris Laucins: What I have seen from my experience is that rather often the choice of an investment location is based on seemingly irrational motives. It might be an excellent restaurant, a golf course, the availability of a kindergarten for the kids of a potential investor or other intangibles which play an important role in making the final investment decision.

Therefore, my wish for the coming year is that even though there might be above-average inflation or other economic problems we must work the hardest on the human factors to provide each investor with the feeling that they are welcome to our small country of Latvia.